Outlook for German private equity market remains positive

19 March 2015 - 11:50 am UTC

6th German M&A and Private Equity Forum focused on 2015 outlook • Foreign buyouts of German companies hits three year high • Private equity funds rethink their strategy

Düsseldorf– Today’s German M&A and Private Equity Forum in Düsseldorf concluded with a positive outlook for the German private equity market. Experts discussed the significance of the German market for private equity investors and their future role for the German Mittelstand as well as changes the industry needs to make. Mergermarket, an independent mergers and acquisitions intelligence and data service, hosted the conference for the sixth time.

Three year high for foreign buyouts suggest positive outlook for 2015 The 2014 revival that private equity experienced in Europe has significantly improved the industry climate. “With access to cheap acquisition finance, we expect bidders from countries with stronger currencies to make use of attractive opportunities in the Eurozone.” says Maryna Irkliyenko, Private Equity correspondent at Mergermarket. The 63 foreign investments made into Germany by buyout firms in 2014 surpassed the previous two years to hit the third highest level on Mergermarket record.

Germany – a competitive target market for private equity Thanks to its stability in a volatile environment and the strength of its Mittelstand, Germany will remain very attractive to private equity investors. The post-crisis high of 135 private equity buyouts last year suggests reasons to be optimistic. “We expect the positive investing environment to continue as investors search for companies with skilled management, stable cash-flows and strong credit stories,” says Mathew Cestar, Head of Leveraged Finance in EMEA at Credit Suisse. “We expect default rates in Europe to remain low with the high yield rate seen at 0-1% and leveraged loans at 1-3% in 2015.” The Industrial and Chemical sectors are likely to receive the strongest interest from private equity, as the long-term outlook for these industries remains strong. The sector is already accounting for 87.5% of all buyouts so far this year with seven deals worth EUR 769m.

Panellists at the conference agreed that favourable financing will support private equity investors in 2015. This will make the buyout market very competitive, forcing up valuations: “There are fewer deals in the pipeline, but the investment pressure still remains,” states Georg Schneider, Partner Noerr LLP, Head of Noerr’s Private Equity & Venture Capital Group. “On the other hand, the fundraising window opened wide in 2014, thereby increasing divestments by existing private equity funds.”

Private equity funds rethink their investment strategy As a result of the financial crisis, private equity funds have had to modify their business models and rethink their approach. Industry specialists at today’s conference describe a shift to more sustainable strategies. The trend is that private equity funds invest more time and money in the companies of their portfolios than ever before, and this is increasingly important differentiator for sellers in an auction process. ”Rather than short-term and limited investments , private equity funds are investing more in to their portfolios for convincing and sustainable equity stories to stay trustworthy and competitive,” states Johannes Koch, German Bureau Chief at Mergermarket.